Indian Defence Offsets: A Preliminary Appraisal

R
A N D WA R FA
NT
RL
RE
S
S
CE
DIE
Issue Brief
FO
TU
E
CLAWS
VI
CT
ION
OR
Y THROUGH VIS
CLAWS
Indian Defence Offsets:
A Preliminary Appraisal
n Bikramdeep Singh
Introduction
Definition
In its simplest form, an offset is a trade-off or a type
of barter system. Offsets can generally be termed
as formal arrangements of trade, wherein a foreign
supplier undertakes specified programs with a view
“An offset is a contract imposing performance
conditions on the seller of a good or service so that the
purchasing government can recoup, or offset, some of
its investment. In some way, reciprocity beyond that
associated with normal exchange of goods and services
is involved. An offset occurs when the supplier places
work to an agreed value with firms in the buying
country, over and above, what it would have bought in
the absence of the offset. Offset are usually
designed to achieve relocation of economic
activity from the country of the equipment
supplier to the purchasing nation”.1
Offsets are a formal arrangement,
as it has inbuilt contractual obligations.
The negotiated package consists of the
primary contract and the compensatory
offsets contract. Different nations have
used offsets differently to suit their specific
requirements, therefore countries evaluate
and assess offsets in different ways. For
example, offsets are often established as
condition for participation to the bid, if the
The Centre for Land Warfare Studies (CLAWS), New Delhi, is an autonomous think tank dealing with national security and conceptual aspects
of land warfare, including conventional and sub-conventional conflict and terrorism. CLAWS conducts research that is futuristic in outlook and
policy-oriented in approach.
Website: www.claws.in
Contact us: [email protected]
No. 32, February 2013
world over, defence trade is a high cost, high technology
and extremely specialised commerce linked to national
security. In an economy driven growth market, the
defence sector is gradually swinging from a seller’s
market to a buyer’s one. There is enormous potential for
large arms importing countries like India for leveraging
this buying power so as not only get the best weapon
system and platforms for our Armed Forces but also
accrue associated benefits from these deals in terms of
market for indigenous defence products, establishing of
JVs with OEMs, business for own MSMEs and induction
of critical technology into the country.
One of the methods of accruing benefits beyond price
negotiations in any defence acquisition is offsets. India
too has included offsets in its DPP in year 2006 and has
thence constantly endeavoured to evolve the policies
governing discharge of offsets. This policy is gradually
bearing fruit to the advantage of indigenous defence
industry, as well.
to compensate the buyer as regards his procurement
expenditure and outflow of resources. In other words,
the supplier undertakes programs to generate benefits for
the economy of the buyer country. However legitimately
offsets may be defined as,
RL
A N D WA R FA
RE
ST
CE
IES
NT
R
FO
UD
2
E
CLAWS
VI
CT
ION
OR
Y THROUGH VIS
CLAWS
Indian Defence Offsets...
vendor fails to present a viable offset package, typically
meeting certain buyer specific requirements, then the bid
is disqualified. Another widely used approach is to have
offset as one of the award criteria, which implies offset is
one of the parameters alongwith cost and performance
to evaluate the qualified bids. The Indian Offset policy
follows the former however with the leeway to the
vendor to decide the offset proposal to be offered.
Evolution of the Indian Offset Policy
The evolution of the Indian Offset policy is as given in a
graphic representation,
Fig 1 : Evolution of the Indian Offset Policy
RL
A N D WA R FA
RE
ST
CE
IES
NT
R
FO
UD
CLAWS
E
CLAWS
VI
CT
ION
OR
Y THROUGH VIS
3
The offset policy when introduced in 2005 was a two page document. Since then it has undergone five revisions
and is a much more forward looking policy now. The Ministry of Defence (MoD) is still inviting opinions on how
the offset experience could be further improved.
Mode of Implementation
Offsets can be direct, indirect or a combination of the
two as elucidated under: l Direct. In direct offsets, the trade arrangement is
related to the primary product sold. It implies that
the compensatory dispensation remains confined to
the main weapon systems, its sub-assemblies and
components. These are usually in the form of coproduction, subcontracting, training, production,
licensed production, technology transfer or
financing activities. Direct offsets do not transcend
to other economic or social activities or other
domains.
l Indirect. Indirect offsets have a much wider scope and
are not restricted to the product sold. They generally
take the form of compensation trading. These kinds
of offsets include purchases, investment, training,
financing activities, marketing/exporting assistance and
again, technology transfer. Reciprocal trade, counter
purchase, switch trading, counter deliveries and
parallel trade fall under this category. Today, indirect
offsets outnumber direct offsets by two to one, as the
buyer countries have realized the immense economic
and social potential of offsets. Indirect offsets could be
divided in two subcategories, defence-related indirect
offsets and non defence-related indirect offset.
l Quasi. Although there is no formal classification for
these types of offsets. Offsets at times may transcend
into forms which can be a mix of direct and indirect
formats.
The Indian experience so far with offsets has been
mostly limited to direct offsets and we are quite a way
off to graduate to indirect and quasi offset modes.
Methodology of Implementation
Threshold: Most of the countries have laid down an
‘offset threshold’ for defence imports. It implies that
all arms deals above that value would necessarily
have associated offsets. Indian Offset policy
guidelines stipulate applicability of offset clause to all
procurements above Rs 300 Crores. The threshold
stipulation is as old as the offset policy itself and its
upward revision so as to enable tangible benefits to
be accrued from offsets is imperative.
l Scope: Offset provisions applies to all capital
acquisitions categorised as “Buy (Global)” i.e.,
outright purchase from foreign vendor or “Buy and
Make with ToT” i.e. purchase from foreign vendor
followed by Licensed Production, where the estimated
cost of the acquisition proposal is Rs 300 Cr or more.
A uniform offset of 30% of the estimated cost of the
acquisition in ‘Buy (Global)’ Category acquisitions
and 30% of the foreign exchange component in ‘Buy
and Make’ category acquisitions is the minimum
required value of the offset. The DAC may, after due
deliberation, also prescribe varying offset percentages
above 30% or waive off the requirement for offset
obligations in very special cases. Such directions may
be made applicable for different classes of cases or for
individual cases depending upon the factors involved
such as type of acquisition, strategic importance of
the acquisition or technology, enhanced ability of
Indian defence industry to absorb the offset, export
potential generated, etc.
n An Indian company or its joint venture
participating in “Buy (Global)” cases is exempt
from the applicability of offset obligations
provided the defence equipment has indigenous
l
RL
A N D WA R FA
RE
ST
CE
IES
NT
R
FO
UD
4
E
CLAWS
VI
CT
ION
OR
Y THROUGH VIS
CLAWS
content of minimum 50 per cent by cost value.
Incase the indigenous content is below 50 per
cent, offsets are mandatory but only for the
part which involves foreign component. The
offset policy thus remains ambiguous on the
modalities of offset applicability and model
for Indian companies participating in a Buy
(Global) case.
n In the case of 126 x MMRCA deal the offsets
have been pegged at 50% of the contract value,
which is estimated to be USD 10.24 Billion, thus
implying approx 05 Billion USD as offsets. In
all probability these offsets will follow the direct
mode and the capability of HAL to absorb such
high offsets is highly suspect particularly when
the present regulations mandate the vendor to
complete the offset requirements during the period
within which the contract is being executed and
it is co-terminus, or ends simultaneously, with the
contract. The MoD therefore has no option but
to allow extension of the period to fulfill offset
obligations to M/s Dassault at a later stage.
n Offset provisions however do not apply to
procurements made under Fast Track Procedure
(FTP) as also for Repeat Orders or orders under
Option Clause.
l Discharge: Offsets may be discharged through various
avenues as listed in the Defence Offset Guidelines
2012, listed as under2:
n Direct purchase of, or execution of export
orders for, defence products and components
manufactured by, or services provided by,
Indian defence industries, i.e., DPSUs, the OFB
and private defence industry. For the purpose
of defence offsets, services imply maintenance,
overhaul, upgradation, life extension, engineering,
design, testing of defence products, defence
related software or quality assurance services.
n Foreign Direct Investment (FDI) in joint ventures
with Indian enterprises (equity investment) for
the manufacture and/or maintenance of eligible
products and provision of eligible services.
n Investment in ‘kind’ in terms of transfer of
technology (ToT) to Indian enterprises for the
manufacture and/or maintenance of eligible
products and provision of eligible services This
could be through joint ventures or through
the non-equity route for co-production, codevelopment and production and licensed
production of eligible products and services.
n Investment in ‘kind’ in Indian enterprises in terms
of provision of equipment through the non-equity
route for the manufacture and/or maintenance of
eligible products and provision of eligible services.
n Provision
of equipment and/or ToT to
Government institutions and establishments
engaged in the manufacture and/or maintenance
of eligible products and provision of eligible
services, including DRDO (as distinct from Indian
enterprises). This will include augmenting capacity
for research, design and development, training
and education but exclude civil infrastructure.
n Technology acquisition by DRDO in areas of high
end /niche technology.
l
The list of discharge avenues is ambitious and a wish
list of soughts inkeeping with our National Interests.
The reality is however very different so much so
that the composition of the Technology Acquisition
Committee (TAC), which is to be convened under the
aegis of DRDO for technology acquisition is yet to
be decided leave alone identifying the methodology
and tools for assessing the appropriate value of
technology proposed to be acquired.
A comparative analysis of the global offset models
being adopted by leading arms importing countries is as
tabulated below:
RL
A N D WA R FA
RE
ST
CE
IES
NT
R
FO
UD
CLAWS
E
CLAWS
VI
CT
ION
OR
Y THROUGH VIS
5
Table 1 : Comparative analysis of offset provisions of leading global arms importing countries
Country
Minimum value
of the contract
Minimum offset
required
Poland
EUR 5,000,000
Saudi Arabia
USD 107
Million
100%, direct must 35%
account for 50%
South Korea
USD 10 Million
Term
Min 3 years &
Max 10 years
Within 10
years
Contract length
Flexible
Max 2 years
7 years
Contract length+2
years
Nature of Offset Both direct &
indirect
Civil &
Military
Mostly direct
but indirect also
prevalent
Only
direct(indirect
removed)
Defence
industry
Defence, Civil
Aerospace &
Internal Security
Multipliers
Subject to
approval of
offset
Authority
6
1-5, as
5
mentioned
in the directive
1.0 and 2.0
(Direct)
0.5 & 1.5
(Indirect)
30 to 70 %
Turkey
South Africa India
USD10 Milion >USD 2
USD 62.5 Million
Million
50%
50%
30%
1.5 – 3
Offset Process
The Offset process is as enshrined in the Defence
Procurement Procedure (DPP) 2013 and given out at
Appendix D to Chapter 1. The process is cogent and
linked with the main procurement proposal.3
Fig 2: Flow chart depicting the processing of an offset proposal
RL
A N D WA R FA
RE
ST
CE
IES
NT
R
FO
UD
6
E
CLAWS
VI
CT
ION
OR
Y THROUGH VIS
CLAWS
Offset Banking
Offset banking was first introduced in 2009. Foreign
vendors could consider creation of offset programs
in anticipation of future obligations through these
provisions. Offset credits so acquired can be banked and
discharged against future contracts. Banked offset credits
are not transferable except between the main contractor
and his sub-contractors within the same acquisition
program. The main contractor is required to submit a list
of such sub-contractors at the time of signing the contract.
The offset guidelines stipulate that banked offsets shall
remain valid for a period of seven years from the date
of acceptance by the Defence Offset Management Wing
(DOMW). The guidelines are however not clear whether
this period is co-terminus with the main contract or is
applicable to any other contract signed by the OEM or
his Tier 1 vendor within the period of seven years of
submission of response to RFP, given our dismal hit rate
on issue of RFP and RFP materializing into procurement.
Only two cases of offset credit banking have been approved
so far while there are several in the pipeline for a long time.
Defence Offset Management Wing
(DOMW)
The Offset Guidelines 2012 have created the Defence
Offset Management Wing (DOMW), which replaces
the erstwhile Defence Offset Facilitation Organisation
(DOFA), to facilitate implementation of the offset policy.
DOMW however remains under the Department of
Defence Production (DDP) as hither-to-fore. The major
functions of this agency are,
l Facilitate implementation of the offset policy.
l Assist potential vendors in interfacing with the Indian
defence industry.
l Assist in vetting offset proposals technically.
l Assist in monitoring the offset provisions.
l Suggest improvements in the policy and procedures
and formulate offset guidelines.
l Be a repository of finalized and concluded offset contracts.
l
Monitor offset program implementation and
administer penalties incase of default by OEM.
The DOMW is conceptualized as a single window
for defence offsets, but with limited resources in terms of
trained manpower it is likely to land up being a toothless
tiger like its earlier avatar (DOFA). Among one of the
major observations is that the DOMW does not even
vet the offset contract, in such case, how can it ensure
the successful implementation of an offset program.
The responsibility for pre-contract vetting and analysis
remains with DDP and Acquisition Wing while post
- contract signing, it shifts to DOMW for monitoring
implementation. This aspect needs to be streamlined for
better and a more accountable structure.
Further the Revised Defence Offset Guidelines 2012
designate DOMW with the sole responsibility of ensuring
smooth offset process under a separate Joint Secretary
(JS, DOMW). Ironically, even after more than a year
and half of the revised guidelines coming into effect, no
JS has been posted to DOMW and the duties are being
taken care of by JS Naval Systems as additional charge.
DOMW is required to submit an annual report to
Defence Acquisition Council (DAC) on the progress of
various offset programs, however the first report is yet
to be prepared and presented.
The Offset Story in Numbers ($$$$)
The Long Term Integrated Perspective Plan (LTIPP) as
available in open domain in the form of Technology
Perspective Capability Roadmap (TPCR) is expected to
be valued at $ 500 Billion approximately.4 So far offset
contracts worth $ 3.8 Billion have been signed till May
2013 and approx $10 Billion worth offset contracts are
in the offing including the mammoth MMRCA deal. An
analysis of the offset contracts inked so far reveal that
contrary to belief the private sector has been the major
beneficiary bagging about 58 % of share as compared to
the public sector with 42 % of share of the offsets. The
popular products and services for offset discharge are as
under:-
RL
A N D WA R FA
RE
ST
CE
IES
NT
R
FO
UD
CLAWS
E
CLAWS
VI
CT
ION
OR
Y THROUGH VIS
Fig 3 : Popular products and services for Offset discharge
Details of offset contracts concluded upto 2012 and those in the pipeline are as tabulated below,
Table 2: Details of Offset Contracts Concluded 5
Opportunity
OEM
Program
DPP Version Offset Contract
Date
Value
($ Million)
Offset Obligation
for Signed
Contracts
Elta, Israel
Rosoborone Exports
(RBE)
IAI, Israel
Boeing, US
Medium Power radars
MIG 29 Upgrade
Mi -17 V5 Helicopters
Harop UAV
P 81 Long Range Recce
Aircraft
C130 J
2006
2006
2006
2006
2006
Oct 16, 2007
Mar 07, 2008
Dec 16, 2008
Apr 13, 2009
Jan 01, 2009
54
308.27
405.07
44.3
641.26
2006
Mar 06, 2009
219
Fleet tanker
2006
55.28+55.28
EO/IR Recce pods for
Jaguar
Low Level Transportable
Radar (LLTR)
Air Route Surveillance
Radar
AW 101 VVIP Helicopters
2006
Apr 23, 2008
+
Mar 31, 2009
Jun 02, 2009
2006
July 29, 2009
34.75
2006
Nov 06, 2009
11.16
2008
Feb 08, 2010
224.14
UAVs
Sensor Fuzed Munitions
Re-engine
C 17 Globemaster
Mirage 2000 Upgrade
2006
2008
2012
2008
2008
Jul 04, 2010
Nov 15, 2010
80.77
102.54
600
1091.7
592.8
MBDA, France
MICA IR/RF
Pilatus, Switzerland Basic Trainer Aircraft
To be decided
Howitzer Program
Aerial Tankers
CQBs and Assault Rifles
MMRCA
Jaguar Reengine
2008
2008
2012
2008
2006
2006
2012
Jan 31, 2012
May 24, 2012
Yet to be signed
Lockheed Martin,
US
Fincanteri, Italy
IAI, Israel
Thales, France
IAI, Israel
Augusta Westland,
Italy
IAI, Israel
Textron, US
Honeywell, US
Boeing, US
Thales, France
Offset Obligation
for Upcoming
Contracts
Jun 14, 2011
Jul 29, 2011
21.08
386
150
1100
1000
300
7000
1000
7
RL
A N D WA R FA
RE
ST
CE
IES
NT
R
FO
UD
8
E
CLAWS
VI
CT
ION
OR
Y THROUGH VIS
CLAWS
Effect of Offsets on the Indian Industry
With about USD 1 Billion worth of offsets executed accrued and as to whether the objectives of offset policy
till 2012, it would be pertinent to examine the benefits have been achieved.
Table 3 : Details of Indian Offset Partners (IOP) till 20116
Entity
Sector
No of Contracts
Value (Rs in Crores)
HAL
BEL
Public Sector
06
06
1928
1576
Tata
L&T
Alpha Design
M&M
HCL
Wipro
Private Sector
04
07
02
01
01
01
1466
771
575
984
235
216
Inference: The major beneficiary of offsets till 2011 has been the private sector.
An analysis of the types of offset contracts concluded has also been undertaken and reveals,
l Major area of offset realization is sub-contracting.
l Bulk of offsets are for direct purchase and subl For Joint development programs, the foreign OEMs
contract. Investments and co-production get a
show a distinct predilection to partner with well
secondary pie.
known Indian private sector companies like TATA,
L&T, M&M rather than DPSUs/OFs.
Chart 1 : Major Areas of Offset Realization 7
An analysis of the growth of defence exports by
Indian industry reveals the following:l Defence exports are being undertaken primarily by
DPSUs and OFs. Clarity on licensing norms and
formulation of a restricted defence export list to
include private defence sector is lacking on part of the
Government. Though Dept of Industrial Policy and
Promotion (DIPP) has recently published the defence
export list but there is enormous ambiguity as regards
dual use technologies in aerospace and defence
as well as export of assemblies and sub systems of
l
A N D WA R FA
RE
ST
NT
R
RL
CE
IES
Impact on Defence Exports
FO
UD
CLAWS
E
CLAWS
VI
CT
ION
OR
Y THROUGH VIS
9
defence platforms. There is no consolidated list of
defence goods in India.
l There is little positive impact on defence exports on
account of offsets.
l There is a need to liberalise the export policies based
on internationally recognised agreements such as
the Wassenaar Arrangement and Missile Technology
Control Regimes without compromising Indian
national interests.
l Response to FDI in defence production, R&D and
creation of Joint Venture (JV) arrangements has been
rather lukewarm.
Chart 2 : Defence Exports Data in Crores of Rupees8
Stakeholders
Government Agencies: Pre- contract monitoring of
offset process is the responsibility of Acquisition Wing,
Ministry of Defence (MoD) while all post – contract
work related to offsets is monitored by the newly created
DOMW, under Dept of Defence Production (DDP).
l MoD
n DOMW under DDP is responsible for formulation
of Defence Offset Guidelines and all matters
relating to post contract management.
n Contract Negotiation Committee (CNC) is
responsible for scrutinizing commercial offset
offers and negotiating its contents with OEM.
n Acquisition Wing is responsible for Technical
Offset Evaluation Committee through the
respective Service HQs.
n Competent Financial Authority (CFA) gives the
approval of the quantum and size of the program.
RL
A N D WA R FA
RE
ST
CE
IES
NT
R
FO
UD
10
E
CLAWS
VI
CT
ION
OR
Y THROUGH VIS
CLAWS
Ministry of Finance
n Foreign Investment Promotion Board (FIPB)
is responsible for approving cases for foreign
investment into Indian defence entities for
forming Joint Ventures (JVs) in consultation with
other ministries.
l Ministry of Commerce
n Directorate of Industrial Policy & Promotion
(DIPP) is responsible for evaluating cases for
grant of industrial licences in consultation with
other ministries.
l Areas of Concern
n MoD must respond in timebound manner to all
queries raised by OEM.
n Help OEM where requested in preparation of
the offset proposal in keeoing with the Offset
Guidelines.
n Where necessary, give the OEM reasonable time
to make necessary changes in his offset offer.
n Grant eligible offset credits in a timely manner.
Adhere to timelines of the technical proposal.
n Clarify its regulatory position with the DIPP.
n Provide appropriate documents for offset discharge.
n Open its doors to the OEM for discharge audit.
l
Indian Offset Partner (IOP) : Selecting viable IOPs
and executing offsets through them has been a major
challenge for foreign OEMs in India. It is necessary to
undertake propoer due diligence by OEM and his country
representatives prior to inducting companies as IOPs.
l Necessary conditions for nomination as IOP
n Indian enterprise involved in eligible products/
services
n Owned by Indian promoters.
n Controlled by Indian promoters.
n Place of manufacture/ provision of services should
be within the territory of India.
n Compliant with the extant regulations of the
Govt of India.
n Holds industrial license for manufacture of
defence goods/ products.
l
Responsibilities of IOP
n Share risk with the OEM.
n
l
Areas of Concern
n It is the responsibility of the IOP to convice the
OEM of then capability and credentials (in terms
of financial position, experience, capability to
absorb technology etc) to undertake and execute
the offset obligation.
Original Equipment Manufacturer
(OEM)
Responsibility of the OEM
n Ensure successful discharge of the entire offset
obligation.
n Seek clarification on any offset issue from
Technical Manager in the Acquisition Wing,
MoD.
n Identify and select suitable IOPs.
n Prepare compliant technical and commercial
offset proposals.
n Provide satisfactory clarifications to queries/
observations and make necessary amendments
as suggested by Technical Offset Evaluation
Committee (TOEC) during negotiation stage.
n File for offset credits with DOMW.
l Answers to the questions as listed at Appendix A will
aid the OEM in discharge of offset program
l Stagewise list of activities are listed at Appendix B
as a check list for the OEM for processing an offset
proposal.
n Areas of Concern
n The OEMs looking to undertake offset programs
in earnest have to tackle multiple issues from a
regulatory and structural standpoint specially
with regard to monitoring of offset contracts
becoming more stringent by the day.
l
Given the key objective of the Defence Offset Policy to
leverage capital acquisitions to develop Indian defence
industry by fostering development of internationally
competitive enterprises, augmenting capacity for Research,
Design and Development related to defence products
and services and encouraging development of synergistic
sectors like civil aerospace and internal security. We need
to enunciate a clear set of priorities for offsets, as under :l Acquire state- of- the - art technology.
l Provide opportunities of manufacturing and exporting
components and parts of acquired equipment.
l Acquire depot maintenance technology, facilities,
equipment and tools for service.
l Receive upgraded systems of in-service weapons to
ensure successful life extension.
l Export defence industrial products.
l Acquire foreign maintenance works.
l Acquire military related technology.
Key Policy Recommendations
Offset Analysis: An in-depth analysis of our own
requirement of offsets is essential so as to build
a database for the same for subsequent usage. At
the same time analysis of the prospective vendors’
capabilities of providing offsets be carried out,
instead of him offering offsets as per his choice.
l Offset Options: The vendor be asked to offer a basket
of offset options from which the buyer selects the one
meeting his requirements.
l Offsets Grading: Present offset procedure allows for
the vendor to fulfill the minimum offset criteria. A
grading system based on technology content in the
offset is suggested which will enable cutting edge
technology to be introduced as part of offsets.
l ToT Vs Offsets: Both ToT and direct offsets should
be aimed at indigenous production of the equipment.
Identification of required technology, evaluation of
ToT & benchmarking before issue of RFP, needs to
be deliberated further.
l
A N D WA R FA
RE
ST
NT
R
RL
CE
IES
Offset Priorities
FO
UD
CLAWS
E
CLAWS
VI
CT
ION
OR
Y THROUGH VIS
11
Indirect Offsets: Inclusion of indirect offsets as part
of offset obligation be explored for addition in the
DPP to enhance overall impact of offsets on the
countries economy and technological base.
l Third Party: Introduction of Third Party by the vendor
for fulfilling offset obligations needs deliberation.
The following is suggested in this regard:n Third party be one of the co-producers / subsidiaries
of the vendor associated with the equipment in
some manner in design, development, production
or services.
n Aspect of guarantee of the third party fulfilling
offset obligations needs deliberation.
l Offset Credits:
Selling of banked offset credits
by vendors to other vendors should be made
permissible. A minimum additional increase in the
offset investment be made mandatory each year, after
the first two years, to avoid lapsing of the credits.
l Structures and Mechanisms:
The decision of the
MoD to establish a DOMW as a single agency
responsible for implementation of offset programs
needs to be further strengthened by giving it adequate
resources in terms of identity, manpower, training and
expertise. It may also be prudent to have the same
agency responsible for both pre and post contract
management with adequate oversights. Further the
methodology of valuation of offsets and mechanism
for processing of an offset proposal needs to be
further streamlined to bring forth more transparency
and accountability on part of the regulator.
l
Conclusion
Today offsets are evolving into more sophisticated
instruments reflecting the political/strategic/industrial
policy of the buyer country. India requires more and
more technology transfer as it aspires to compete
internationally and become Tier 1 supplier or at least
establish access to the global defence supply chain.
Therefore, ToT is emerging as a key aspect much more
than in the past.
RL
A N D WA R FA
RE
ST
CE
IES
NT
R
FO
UD
12
E
CLAWS
VI
CT
ION
OR
Y THROUGH VIS
CLAWS
The value of an offset depends primarily on its
appropriate selection. Ill-conceived and ill planned
offset programs invariably prove to be highly wasteful
in national resources and uneconomical in value.
Therefore, programs have to be selected on the basis
of their viability, estimated offset credit value, ease of
monitoring and demonstrability of accruing benefits.
Offsets should not be viewed in isolation as one-time
agreements, but as an important and integral element
of long-term national policy. To derive full benefit from
offsets, it is absolutely necessary to understand the
dynamics of offsets. Being one of the biggest buyers of
defence equipment, India can draw immense benefits
with a well thought out and more importantly, an
efficiently implemented offset policy.
Notes
1.
The US Department of Commerce, Bureau of Industry
and Security (BIS), Offsets in Defense - Trade Seventeenth
Study, February 2013.
2. http://ddpmod.gov.in/WriteReadData/l892s/22550424defenceoffsetguidelinesaug2012.pdf
3. Timelines for processing Offset proposal as given at Appendix C to Chapter 1 of DPP 2013
4. CII Conference, April 2013
5. DOMW, MoD
6.Ibid
7. MoD Annual Report 2012
8.ibid
RL
A N D WA R FA
RE
ST
CE
IES
NT
R
FO
UD
CLAWS
E
CLAWS
VI
CT
ION
OR
Y THROUGH VIS
13
Appendix A
CHECKLIST FOR OEM : OFFSET PROGRAM OFFER
IOPs
n How many partners ?
n What sort of partners?
n How to manage export of restricted items?
n Process for JVs and setting up facility in a SEZ.
l Value Addition
n What all does it include ?
n How is it determined ?
n The model of kits.
n What are the proofs required ?
l
Offset Proposal
n Structures and formats.
n Special inclusions.
n Level of detail.
n Phasing of the program.
n Compliance and delivery.
l Liaisoning with MoD
n Eliciting a response.
n Asking for clarifications and responding to
queries.
n Negotiations.
l
RL
A N D WA R FA
RE
ST
CE
IES
NT
R
FO
UD
14
E
CLAWS
VI
CT
ION
OR
Y THROUGH VIS
CLAWS
...A Preliminary Appraisal
Appendix B
STAGEWISE CHECKLIST OF ACTIONS TO BE TAKEN BY OEM FOR
PROCESSING OFFSET PROPOSALS
Warfare Studies (CLAWS), Delhi Cantt -110010
E
FO
RL
A N D WA R FA
RE
ST
CE
IES
NT
R
The contents of this issue brief are based on the analysis of material accessed from open sources and are the personal views of the author.
It may not be quoted as representing the views or policy of the Government of India or Integrated Headquarters of MoD (Army).
UD
Issue Brief No. 32, February 2013
Bikramdeep Singh is Senior Fellow, Centre for Land
CLAWS
VI
CT
ION
OR
Y THROUGH VIS
CENTRE FOR LAND WARFARE STUDIES (CLAWS)
RPSO Complex, Parade Road, Delhi Cantt, New Delhi 110010
Tel.: +91-11-25691308, Fax: +91-11-25692347, Email: [email protected]
Website: www.claws.in